PhD Defence: Ibrahim Nana

Developing Countries’ Participation in Global Value Chains: Determinants and consequences

Jury

Mary-Françoise Renard, Professeure Emeritus, Université Clermont Auvergne
Patricia Augier, Professor, Aix Marseille Université
Camélia Turcu, Professeure, Université d’Orléans
Jean-Louis Combes, Professeur, Université Clermont Auvergne
Issa Faye, Directeur CDIDR-IFC, Banque Mondiale

Abstract

Focusing on developing countries, this thesis discusses the “determinants and the consequences of Global Value Chains (GVCs) participation. The topic has been motivated by changes in the production process observed during the past years that increased the interconnectedness between countries/firms. The current dissertation studies two distinct phenomena around the concept of GVCs with a strong value-added to the existing literature. The first part of the dissertation discusses the determinants of GVCs participation. Following the well-known framework of Koopman et al. (2014), Chapter 1 computes country level as well as sectoral level GVCs participation measures/indexes. Chapter 2 studies the relationship between education public expenditures and GVCs participation. It relies on a Bayesian Model Average estimator to identify key determinants. It also uses a panel fixed effects and instrumental variables regressions to provide evidence on the positive and significant impact of education public expenditures on GVCs participation. While the fixed effects and the IV estimates suggest the existence of this positive relationship, the local projections’ method highlights that the response of GVCs participation to an increase in education public expenditures is not instantaneous. These findings highlight the importance of investing in human capital but also show that the return on investment may not be instantaneous. Chapter 3 provides evidence on how Aid for Trade (AfT) can help promote GVCs participation. Using panel fixed effects and IV regressions, the findings suggest that AfT, by improving domestic infrastructures and the private sector’s capacity, has a positive impact on GVCs participation in recipient countries and helps countries to upgrade their position in GVCs. However, findings also suggest that AfT allocated to economic infrastructures performs better than the rest of the categories. Loans were found to perform better than grants. The second part focuses on the gains and risks associated with such integration in GVCs. Using a gravity model, chapter 4 highlights that uncertainty in both exporter and importer countries negatively impacts bilateral trade. Moreover, uncertainty in the top GVCs production hubs negatively impacts their bilateral trade with the rest of the world. Chapter 5 further relies on an event study approach to prove that uncertainty generated by the trade war between China and the US, as well as the uncertainty created by the COVID-19 crisis, led to a sudden drop in international trade. Despite the negative impact of GVCs in spreading uncertainty, GVCs can also have positive impacts. Chapter 6 proposes an innovative approach to export sophistication based on value-added exports that allow measuring domestic technology created and exported. Using a Panel Smooth Transition Regression Model, it shows the existence of a threshold of absorptive capacity of African countries (human capital level and institutional concerns) above which direct technology transfer from advanced economies to African countries is effective. Chapter 7 employs a panel fixed effect estimator and an instrumental variable estimator with innovative instruments to investigate the impact of African countries’ participation in GVCs on their growth. It also examines the response of GDP per capita to an increase in the level of GVCs participation using the local projections approach. The findings suggest that GVCs participation is associated with increasing GDP per capita. Deep diving into the relationship between GVCs and GDP per capita, find evidence that this relationship may be driven by trade in knowledge-intensive goods and services. However, GVCs also exhibit a positive association with income inequality, implying that GVCs have the potential to increase income inequality.

Keywords

Global value chains, value-added, Trade, Investment, Public expenditures, Human capital, technology transfer, growth and uncertainty.